Fed Meeting Poses Pivotal Test for Market as Slowing GDP Meets Stubborn Inflation
A new round of nowcasts continue to estimate that US economic activity will downshift in next month’s release of first-quarter GDP data. Today’s revised estimate is based on the median for a set of nowcasts compiled by CapitalSpectator.com.
Output for the January-through-March period is currently projected to soften to a 2.1% increase (seasonally adjusted annual rate). The estimate reflects a substantially softer rise vs. Q4’s strong 3.2% advance, which in turn marks a downshift from Q3’s red-hot 4.9% increase, according to government data.
Today’s revised Q1 estimate was essentially unchanged from the previous Q1 nowcast (published on Mar. 7). At this late date in the current quarter, the odds are relatively high that the current median estimate is a reasonable guesstimate for the actual GDP data that the Bureau of Economic Analysis will publish in late-April.
GDP rising at roughly a 2% pace marks another slowdown from recent quarters, but if the current nowcast is correct it suggests that recession risk remains low. The question is whether the slowdown persists into Q2 and beyond.
Given the expected deceleration in growth on tap for Q1, the economy may be flirting with a tipping point for recession later in the year. It’s premature to make such a forecast with high confidence, but it’s a scenario that’s increasingly plausible, albeit speculatively so for now.
Yesterday’s release of retail sales numbers for February aligns with the possibility that even softer growth is coming. Although spending rebounded last month after January’s steep decline, the bounce was lower than expected.
“The modest rebound in retail sales in February suggests that consumer spending growth slowed in early 2024,” says Michael Pearce, Oxford
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